B.K. Mehta, J.
1. The following three questions have been referred to us by the Income-tax Appellate Tribunal, Ahmedabad, for our opinion:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the case of the assessee-trust falls under section 11(1)(b) and not under section 11 (1)(a) of the Income-tax Act, 1961
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payments made to the two hereditary trustees or pujaris are not remuneration for the services rendered by them and that such payments are nothing but application of the income of the trust
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payments made to the hereditary trustees or pujaris are not allowable as expenditure ?'
2. These questions arise in the following circumstances:
The assessment years with which we are concerned in this reference are 1962-63 and 1963-64, the previous years being S. Ys. 2017 and 2018 ending on November 8, 1961, and October 28, 1962, respectively. The assessee is a public religious and charitable trust and is registered under the provisions of the Bombay Public Trusts Act, 1950. A scheme for the said trust was originally framed by the District Judge, Ahmedabad, by the District Court by its subsequent order of July 23, 1900. The scheme was amended by the District Court by its subsequent order of February 4, 1916. A new scheme was framed by the District Judge by his judgment and order of August 23, 1960, in Civil Suit No. 2 of 1959, under the provisions of the Bombay Public Trusts Act, 1950. Under the relevant cls. 12, 13 and 14 of the present scheme, the trustees, after meeting with all the necessary outgoings on account of rates, taxes, assessment and expenses incidental to the administration of the trust and worship of the deity of the temple known as 'KARNA MUKTESHWAR MAHADEV TRUST' of Ahmedabad and also on account of the current repairs and upkeep charges, are under obligation to distribute the surplus income by setting apart 50% thereof for reserve fund and the remaining 50% to be divided equally between the hereditary trustees and pujari, Kunjvihari K. Bhatt, and pujari, Harihar T. Bhatt, respectively, and such payments to the hereditary trustee-cum-pujaris to be treated as their absolute property. The amount standing to the credit of reserve fund is to be invested according to the provisions of the Bombay Public Trusts Act but out of the annual contribution to the reserve fund, 20% is to be utilised for religious, educational and/or medical purposes with the sanction of the District Court.
3. In the course of the assessment, the trust claimed before the ITO that the entire income from the property of the trust should be exempt from tax under s. 11(1)(a) of the I.T. Act, 1961, as was in force at the relevant time. The ITO, on consideration of the scheme of the trust, was of the opinion that the properties of the trust are not held wholly for religious and charitable purposes since the payment of 50% of the surplus income of the trust to the two hereditary trustees was not for charitable purposes, inasmuch as it was not by way of remuneration or salary for the services rendered by them as employees and what they received was out of the income of the said trust. He, therefore, disallowed the claim of the trust by holding that the said payments did not qualify for exemption under s. 11(1)(a) of the I.T. Act, 1961 (hereinafter referred to as 'the said Act'), and the only income which was entitled to be exempt under s. 11(1)(b) would be the amount actually spent for religious purposes and 20% of the amount of contribution set apart as reserve fund.
4. Being aggrieved with this order of the ITO, the trust carried the matter in appeal before the AAC, Ahmedabad, who, by his order of December 21, 1971, confirmed the view of the ITO that the assessee's case would fall under s. 11(1)(b) of the said Act as in his opinion this was a case where the income was only partly applied to the religious purposes. He also rejected the alternative claim of the trust that the said payments must be treated as allowable expenditure. However, in his opinion, since the ITO had not properly computed the income which was exempt, he remanded the matter to the ITO for recomputation of the income which was actually exempted from the liability of tax.
5. The trust, therefore, carried the matter in further appeal before the Tribunal, which rejected the same having regard to the provisions of the scheme of the trust. It held that what was paid to the hereditary trustees or pujaris was not the remuneration for the services rendered by them because the true effect of the payments was the application of the income and it had no direct or indirect relation with the services, if any, rendered by the two hereditary trustees. The Tribunal confirmed the view of both the lower authorities that the case fell under s. 11(1)(b) and not under s. 11(1)(a) of the said Act.
6. At the instance of the assessee-trust, therefore, the questions set out hereinabove have been referred to us for our opinion.
7. We have heard the learned Advocate-General for the assessee and the learned counsel for the revenue who have taken us through the original scheme as framed by the District Court, Ahmedabad, by its judgment and order of July 23, 1900, as well as the present scheme framed by the District Court on August 23, 1960, under the provisions of the Bombay Public Trusts Act, 1950. Our attention had been invited to the judgment of the Bombay High Court in Second Appeal No. 565 of 1942 between the pujaris of the temple and their judgment-creditor where the question about the nature of payment made by the trust to the pujaris was one of the points at issue. Having given anxious thought to all the relevant aspects of the question we are of the opinion that this reference must be accepted obviously for the following reasons:
The entire dispute between the assessee-trust and the revenue hangs on the determination of the question as to what is the nature of payment to the hereditary trustees and pujaris. If the nature of payment is in effect and substance for the services rendered by them, we do not think that the Tribunal was justified in rejecting the claim of the assessee-trust that the entire income from the trust properties was not liable to tax. Incidentally, of course, therefore, the question would turn on consideration as to whether the case of the assessee-trust falls under s. 11(1)(a) or s. 11(1)(b) of the said Act as was in force at the relevant time. We would, therefore, in the first instance, consider as to what is the nature of payment to these hereditary trustees or pujaris as they are called. It may be also necessary to refer shortly to the circumstances which compelled the District Court to frame the first scheme in the year 1900 so as to have some right of the question about the nature of payment. We will, therefore, in the first instance, consider as to what is the present scheme and, thereafter, whether there was any departure in the present scheme from the original scheme made by the District Court of Ahmedabad in the year 1960 in that behalf. The present scheme was framed in Civil Suit No. 2 of 1959 on the file of the Court of the District Judge at Ahmedabad filed by the Charity Commissioner against the two pujaris and the receiver appointed by the District Court in the earlier proceedings. The reliefs prayed for by the Charity Commissioner in the suit were, inter alia, for removal of defendants Nos. 1 and 2 as trustees of the said trust and to fix proper and reasonable remuneration of the pujaris by reducing the amount payable to them under the old scheme and to frame an exhaustive scheme afresh. The learned district judge was of the opinion on hearing the evidence adduced by the parties that since the original scheme was framed 60 years ago, it requires to be reframed having regard to the provisions of the Bombay Public Trusts Act, 1950, more particularly because even the hereditary pujaris were liable to be removed if found unfit in performing the puja or in the larger interest of the trust. The factor of appreciable increase in the income also weighed with the learned district judge for deciding to reframe the scheme. He, therefore, framed a fresh scheme for the management of the trust after considering the rival contentions of the parties. We need not refer to all the clauses of the scheme since it is not necessary for the purposes of the determination of the questions in this reference. The material clauses relevant for our purposes are cls. 2, 3, 4, 10, 11, 12 and 13. Clause 2 reads as follows:
'2. The properties of the trust at present shall consist of the immovable and movable properties mentioned in Schedules A and B. The said Schedules shall be submitted by the Receiver, Defendant No. 3. All these properties and acquisitions and donations received by the trust estate as provided hereunder shall be called the trust properties.'
8. By clause 3, the trust properties were to vest in the trustees for the time being under the scheme and would be administered and managed by them subject to the provisions of the scheme. The number of trustees prescribed under the said clause was 3 out of which 2 were to be hereditary trustees as stated in clause 4. Clause 4 provided as under:
'4. Kunjvihari Kanaiyalal Bhatt, eldest son of defendant No. 1, and the defendant No. 2, Harihar Tapishankar Bhatt, and their heirs shall, during their good conduct, be the hereditary trustees and manages and pujaris of the properties.'
9. Clause 10 provided that the worship of the deity would be performed by the branches of the hereditary trustees in turn every alternate year which would commence from Aso Vad 3, S.Y. 2016, subject to the obligation of each branch to render accounts of offerings and donations received during the tenure of their management. Clause 11 obliged the trustees to maintain proper system of worship of the deity and to keep the doors of the temple open between the hours as specified therein in the morning and in the evening. Clauses 12 and 13 read as under:
'12. The trustees shall out of the profits and income of the trust property pay all rates, taxes, assessments, other necessary outgoings and all the costs, charges and expenses of the incidental to the administration of the management of the trust properties together with all the expenses for the worship of the deity and current repairs and upkeep charges of the trust properties.'
'13. Out of the residue remaining after the disbursements mentioned in clause 12 above the surplus income shall be distributed as unde :-
50% of such surplus shall be set apart and be allocated to the reserve fund, 25% of such surplus shall be paid to Kunjvihari K. Bhatt, the hereditary trustees and his heirs.
25% of such surplus shall be paid to Harihar T. Bhatt, and his heirs.
The amounts paid to the hereditary trustees shall be their absolute property, and they shall not be accountable for the same. The hereditary trustees and their heirs shall be entitled to reside in the respective premises in the Mahadev at present occupied by them.'
10. It is necessary at this stage to remind ourselves as to what were the circumstances under which the original scheme was required to be framed by the District Court in the year 1900. Since the then pujaris, S/Shri Nanubhai Mansukhbhai and Gopalbhai Mansukhbhai were claiming adverse title to the trust properties of the temple of KARNA MUKTESHWAR MAHADEV the plaintiffs claiming the right to worship in the temple and after obtaining a certificate from the Collector, filed a suit in the Court of the District Judge, Ahmedabad, being Civil Suit No. 3 of 1897 praying, inter alia, for removal of the aforesaid two pujaris who were arrayed as defendants in the suit and for a decree for the amount that might be found due and payable by them on taking accounts. The said pujaris in their written statement, inter alia, claimed the ownership of the temple in them. An issue was, therefore, raised by the court as to whether the properties in the suit formed part of the public religious trust and whether the defendant-pujaris were in possession as manager-trustees or owners. The learned district judge found that the properties in the suit were part of the public behalf of the general worshipers of the temple. As regards what remuneration should be paid to the pujari-trustees, the learned district judge was of the opinion that clear directions should be given about the disbursement of the annual income lest the pujaris may appropriate the entire income to themselves. On a consideration of the relevant material the learned district judge thought fit to give the following directions, inter alia, in this behalf, after referring to a similar scheme framed in the matter of Koteshwar Mahadev temple:
'...... one-third of the income of the immovable property of the temple shall be expended in repairing the temple compound wall and buildings belonging to the temple. But of the remaining income of the temple the managers shall defray the temple expenses and maintain themselves.'
11. In other words, the pujaris as the trustees and managers of the temple were allowed 2/3rds income of the trust properties as their income for purposes of their maintenance and temple expenses. They were directed to maintain proper system of worship and to keep the doors of the temple open during the prescribed hours in the morning the evening. They were also obliged to keep and maintain regular accounts of all the receipts and expenses and to submit them to the District Court annually within one month after Diwali and each Samvat year. They were also enjoined not to appropriate the movable properties offered to the idol for any other purposes or to removal it from the temple.
12. It would be pertinent to refer shortly as to how the Bombay High Court considered the nature of the income received by the pujaris-trustees. The question was required to be considered in the second appeal preferred by the original judgment-creditor of one of the then pujari-trustees, deceased, Bhatt Tapishankar Keshavlal. The judgment-creditor had filed the suit for recovery of the amount claimed to be payable by the said Tapishanker. The trial court granted the decree as prayed for ordering the heirs of the said Tapishanker, who were brought on the record of the suits as a result of his demise pending the suit, to pay Rs. 4,152-12-9 together with costs and interest out of the estate of the deceased in the hands of the heirs. The judgment-creditor filed an application for execution seeking to attach 1/3rd share of the income of the said Tapishanker from the immovable properties of the temple. No prayer was made in the said application to attach the offerings and emoluments paid to the trustees. Since the executing court rejected the application, the matter was carried in appeal before the District Court where also it met with the same fate. In the second appeal, it was urged that the decree was executable against the joint family property which had passed to the son of the deceased by survivorship and also under the pious obligation of the sons to pay the debts. A Division Bench of the Bombay High Court consisting of Kania. Actg. C.J., and Gajendrakadkar J. (as they then were) while confirming the conclusion of the lower courts considered the nature of the income of the deceased. The Division Bench in this behalf observed:
'...... The character of the receipts must be determined according to all the circumstances of the case. The first thing to be noticed in this connection is that under the scheme the defendants and their heirs during their good conduct are to be trustees and managers. They could therefore be removed if the appointing authorities considered that they were guilty of misconduct. secondly, the express words do not show that the office is hereditary. Again, under clause 6, the two-thirds share is not given to the trustees and managers for their own use. It is provided that 'out of the remaining income.......... the temple expenses had to be defrayed and the managers had to maintain themselves'. It is, therefore, clear that the whole of the two-thirds in no event belongs to the trustees. The temple expenses have first to be defrayed...... We do not propose to determine the exact meaning of the words of these clauses, but read together they do not support the contention that this is a hereditary office with the right to receive the emoluments attached thereto as understood in Hindu law. It will again be noticed that under clause 11 the whole scheme may be altered by the District Court. That right of alteration does not reserve to the defendants and their heirs a right of alteration does not reserve to the defendants and their heirs a right to be trustees and managers..........
The scheme framed by the District Court strongly lends support to the view taken by the learned district judge that the remuneration payable to the trustees or managers is for the service rendered by them and is their personal property......'
13. The appeal of the judgment-creditor was, therefore, dismissed. It is against this backdrop that we have to decide whether the Tribunal was right in reaching the conclusion that the payments made to the two hereditary trustees-cum-pujaris were not remuneration for the services rendered. In the ultimate analysis, it is the consideration of the payment which will determine the entire dispute between the assessee-trust and the revenue. According to the present scheme, the trustee-cum-pujaris were under obligation to render the following services:
(1) To maintain and administer the trust properties.
(2) To maintain regular accounts of all income and expenditure of the trust properties and get them audited.
(3) To submit the balance-sheet to the court and the Charity Commissioner every year.
(4) To lees out the properties.
(5) To carry out the worship of the deity.
(6) To maintain proper system of worship.
(7) To see that the doors of the temple open and close at specified hours.
(8) To pay all taxes, rates, assessments and all costs, charges and expenses incidental to the administration and management of the trust properties.
(9) To keep the trust properties in proper repairs.
15. It is for all these services enumerated above that the trustee-cum-pujaris together were to be paid in all 1/2 of the net income arrived at after meeting all the outgoings as required under clause 12 of the scheme. It should be recalled that under the original scheme the pujaris were entitled to 2/ds of the income out of which they had to meet all the expenses necessary for puja of the deity and also to maintain themselves. In the present scheme, since all the necessary expenses for the worship are to be defrayed as one of the outgoings, the pujaris were allotted 1/2 of the net income arrived at after meeting all the necessary outgoings as specified in clause 12. The net income of the property as computed in the assessment year 1962-63 was in the vicinity of about Rs. 26,000 and, therefore, the trustee-cum-pujaris would be entitled to about Rs. 13,000, being half of the said net income. Each of the trustee-cum-pujaris, therefore, would be entitled to Rs. 6,500 per annum which will work out to about Rs. 500 per month. We are, therefore, of the opinion that the Tribunal was not right in reaching the conclusion that the payment was not in the nature of renumeration for the services rendered. in our opinion, the order is a very cryptic one without assigning any reason in support of the conclusion which had been reached. Though this material was before the Tribunal, the Tribunal failed to consider the same in proper perspective and draw a correct inference therefrom. More particularly, the Tribunal has overlooked the weighty opinion of the Division bench of the Bombay High Court in second Appeal No. 565 of 1942, where the Division Bench, speaking through Kania, Actg. C.J., held that the original scheme framed by the district judge strongly lent support to the view that the remuneration payable to the trustees or managers was for the services rendered by them. No reasons have been assigned by the Tribunal as to why this opinion of the Division Bench was not acceptable nor had the Tribunal considered as to what were the different duties which these trustee-cum-pujaris had to render either under the present scheme or for that matter under the original scheme. We are, therefore, of the opinion that the Tribunal committed an error of law in reaching the conclusion that the payments made to the two hereditary trustee-cum-pujaris were not remuneration for the services rendered by them. The office of the trustees though described as hereditary was not in essence permanent since they were to be in the office so long as their conduct behooved the office. It should also be emphasised that they were holding the office of trustee-cum-pujaris under the scheme framed under the Bombay Public Trusts Act and, therefore, they were liable to be removed on any of the permissible grounds under the said Act. The Division Bench of the Bombay High Court has also taken the same view so far as the nature of the tenure of the office was concerned having regard to the provisions contained in the original scheme. In that view of the matter, therefore, question No.2 must be answered in the negative, that is, against the revenue and in favour of the assessee.
16. It cannot be urged, therefore, having regard to the opinion which we are inclined to give on question No.2 that the case of the assessee-trust would fall under s. 11(1)(b) and not under s. 11(1)(a) as was in force at the relevant time. The material part of s. 11(1)(a) nd s. 11(1)(b), which was in force at the relevant time, read as under:
'II. (1) Subject to the provisions of section 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income -
(a) income derived from the property held under trust wholly for charitable or religious purposes in India; and where any such income is accumulated for application to such purposes in India, to the extent which the income accumulated is not in excess of twenty-five per cent. of the income from the property or rupees ten thousand, whichever is higher;
(b) income derived from property held under trust in party only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and where any income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent. of the income from the property held under trust in part;....'
17. In order to support the claim for exemption of income under s. 11(1) the following conditions must be satisfied:
(1) the property from which the income is derived must be held upon trust.
(2) Such could be of charitable or religious purposes enuring for the benefit of the public.
(3) The exemption is available only to such portion of the trust's income as the fact applied to the charitable or religious purposes; if it is wholly applied for the charitable or religious purposes, the whole is entitled to exemption.
(4) If the property held in the trust is in part, only that income which is applied to the religious or charitable purposes would be accordingly exempted.
18. It appears that what has impressed the Tribunal in reaching the conclusion that the case of the assessee-trusts falls under s. 11(1)(b) is that it is the division of income between the trustee-cum-pujaris with whom there was a protracted litigation by the trust that the scheme was required to be framed and, therefore it was a case of an application of the income of the trust. The clear distinction made between the provisions contained in s. 11(1)(a) and s. 11(1)(b) is, in our opinion, with respect not borne in mind by the Tribunal.
19. IN CIT v. P Krishna Warriar : 53ITR176(SC) , a question arose whether the direction of a testator of making and selling ayurvedic medicines in trustees with the obligation to apply 60% of the income thereof to charitable purposes and the remaining 40% for the benefit of his family would entitle the trustees to claim exemption for the 60% of the income under proviso (b) to s. 4(3)(i) of the Indian I.T. Act, 1922. Two contentions were urged on behalf of the revenue (i) that the business would not be the property, and (ii) that since a part of the income was to be applied for non-charitable purposes, the claim for exemption was not justified. In that context, Subba Rao J., speaking from the Supreme Court, brought out clearly this distinction between when a property is said to be wholly set apart of charitable and religious purposes and when it can be said to be set apart in part only. the court held in that context as under (p. 183):
'In our view, the expression 'in part' does not refer to an aliquot part; if half a house is held in trust wholly for religious or charitable purposes, it would be covered by the first part of the substantive clause of clause (i) for in that event the subject-matter of the trust is only the said half of the house and that hale is held wholly for religious or charitable purposes. The expression 'in part' therefore, must apply to a case other than a property a part of which is wholly held for religious or charitable purposes. In India there are variety of trusts wherein there is no complete dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious or charitable institution or to a deity. this is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to the grantor's heirs. A property may be given to an individual subject to, or burdened with, a charge in favour of an idol or a religious institution or for charitable purposes. An owner of property may retain the property for himself but carve out a beneficial interest therefrom in favour of the public by way of easement or otherwise. There may be any other instances where though there is a trust, it involves only a partial dedication of the property held under trust in the sense that only a part of the income of that property is utilised for religious or charitable purposes. the dichotomy between the two expressions 'wholly and in part is not based upon the dedication of the whole or fractional part of the property, but between the dedication of the said property wholly for religious or charitable purposes or in apart for such purposes.'
20. It cannot be gainsaid that the properties here are wholly set apart for charitable and religious purposes. It would be, as observed by the Supreme Court in Krishna Warriar's case : 53ITR176(SC) , an instance of complete dedication. As a matter of fact, it has been held by the District Judge of Ahmedabad in his order made in Civil Suit No. 3 of 1977, that the trust was a public charitable trust. When the new scheme was required to be framed, it was framed under the Bombay Public Trusts Act, 1950, since the trust was registered under the said Act. It is nobody's case that only a part of the property is set apart or held on trust for charitable or religious purposes. The expenses entailed by the trust in the nature of payment to the trustee-cum-pujaris, in our opinion, cannot be otherwise than for the services rendered since their tenure of office was linked with their good conduct and they were holding the offices to the trustee-cum-pujaris under the scheme framed under the Bombay Public Trusts Act. Having regard to the nature of the payment made, the consideration for which the payment was made and the judicial decision in that behalf, it cannot be urged successfully that this was a case of sharing of income or for that matter trust of a part of the property for non-charitable object. It is no doubt true that the payment to the trustee-cum-pujaris has been linked up with the net income of the trust. None the less, the real question is, what is the consideration for the payment, and as held by us, the consideration was the various duties and obligations which the pujaris or the trustees had to carry out under the scheme. We are, therefore, of the opinion that the Tribunal was clearly in error in reaching the conclusion that the case of the assessee-trust fell under s. 11(1)(b) and not under s. 11(1)(a) of the said Act. In our opinion, the Tribunal clearly overlooked what has been provided in cl.2 of the present scheme and the earlier decisions of the District Court in that behalf where it has been clearly held that all the properties, movable and immovable, belonging to this temple were held on trust for the religious and charitable objects. In that view of the matter, therefore, question No. 1 should answered in the negative, that is in favour of the assessee and against the revenue. In view of the above, question No.3 need not be answered.
21. the result is that this reference is accepted be answering questions Nos. 1 and 2 in the negative, that is, in favour of the assessee and against the revenue. Question NO. 3 does not survive. the Commissioner shall pay costs of this reference to the applicant-assessee.